China’s Position of Power

Trump is thinking about adding a 25% tariff on China because of its ongoing oil purchases from Russia. He hasn’t shared many details, but this action may come after the 25% tariffs he just announced for India for the same reason. On Wednesday, Trump doubled the tariff on Indian goods to 25%. This decision was made in response to India’s continued oil trade with Russia. Trump hinted that other countries, with China being a likely target, could face similar tariffs. China is in a strong position and may challenge Trump’s threats. This situation highlights the ongoing tensions and complexities in global trade. Today, August 6, 2025, these new threats against China indicate potential market instability. We are looking at VIX options, as the CBOE Volatility Index could quickly rise from its current low of around 15. History from the 2018-2019 trade war shows that just talking about tariffs can boost the VIX by 5 to 10 points overnight. China’s quickest response may be to weaken its currency, making exports cheaper to offset any new tariffs. Traders should keep an eye on the offshore yuan, as futures on the USD/CNH pair look promising. If China acts, the yuan could move past the 7.35 level, which we haven’t seen since late 2023.

Market Reaction Expected

For equity indices, the easiest path may be downward, especially for tech-heavy Nasdaq. Companies like Apple, which earned nearly 19% of its revenue from Greater China last year, are especially vulnerable. We are thinking about buying out-of-the-money puts on the QQQ ETF as a hedge or a speculative bet on a sharp decline. We also expect a reaction in the commodities market, with possible Chinese tariffs on U.S. agricultural products. Soybean futures could drop sharply, as China is the biggest importer and might switch back to Brazilian suppliers, just like during the last trade war. In this uncertainty, gold futures are likely to gain support as a traditional safe-haven asset. The market shouldn’t take these threats lightly, especially in light of recent events with India. When India doubled its tariffs last Wednesday, the Nifty 50 index fell over 3% in just two days, and the rupee weakened against the dollar. This offers a recent example of how markets can respond to sudden protectionist actions. Create your live VT Markets account and start trading now.

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